BIKERS DREAM INC (Form Type: 10QSB, Filing Date: 11/14/2000)

1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________ to ____________. Commission File No. 0-15501 BIKERS DREAM, INC. (Exact name of small business issuer as specified in its charter) California 33-0140149 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3810 Wacker Drive, Mira Loma, California 91752 (Address of principal executive offices) (909) 360-2500 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of September 30, 2000, 8,920,946 shares of the issuer's common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [X]

2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders Bikers Dream, Inc., dba Ultra Motorcycle Company We have reviewed the accompanying consolidated balance sheet of Bikers Dream, Inc., dba Ultra Motorcycle Company and subsidiaries as of September 30, 2000, and the related consolidated statements of operations and cash flows for the each of the nine month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring losses from operations, its total current liabilities exceed its total current assets, and its accumulated deficit was $23,018,300 as of September 30, 2000. This raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Bikers Dream, Inc., dba Ultra Motorcycle Company and subsidiaries as of December 31, 1999, and the related statements of operation, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated April 4, 2000, we expressed an unqualified opinion on those financial statements. However, our report contained an explanatory paragraph that expressed substantial doubt about the Company's ability to continue as a going concern. We have not performed any auditing procedures since that date. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California October 19, 2000, except for Note 3 for which the date is November 9, 2000. 2

3 Part I. Financial Information Item 1. Financial Statements BIKERS DREAM INC., DBA ULTRA MOTORCYCLE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND SEPTEMBER 30, 2000 (UNAUDITED) <TABLE> <CAPTION> September 30, December 31, 2000 1999 ------------ ------------ (unaudited) <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 276,459 $ 1,434,781 Investments 500,000 -- Accounts receivable, net of allowance for doubtful accounts of $511,305 (unaudited) and $312,376 1,720,329 2,250,939 Other receivables 35,203 54,175 Inventories, net of reserves 3,615,547 4,354,194 Prepaid expenses and other current assets 90,032 240,279 Notes receivable 165,483 -- Net Assets of discontinued operations -- 1,248,088 ------------ ------------ Total Current Assets 6,403,053 9,582,456 Furniture and equipment, net 865,232 988,248 Notes receivable, net of unamortized discount 876,701 -- Excess cost over fair value of net assets acquired, net 2,255,642 2,404,907 Debt issuance costs, net 40,444 80,888 Deposits and other assets 122,876 346,413 ------------ ------------ Total assets $ 10,563,948 $ 13,402,912 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of notes payable $ 4,530,929 $ 153,881 Current portion of capital lease obligations 53,860 62,584 Accounts payable 937,615 2,685,624 Accrued expenses 1,624,590 1,949,426 Accrued legal and settlement costs 70,000 813,000 Advances on financing agreements - related party -- 309,087 Notes payable - related parties 156,638 600,000 Net current liabilities of discontinued operations 24,273 -- ------------ ------------ Total current liabilities 7,397,905 6,573,602 Notes payable, less current portion 42,500 4,564,562 Capital lease obligations, less current portion 103,715 90,324 ------------ ------------ Total liabilities 7,544,120 11,228,488 ------------ ------------ Shareholders, equity Series A, convertible preferred stock, no par value $ -- $ -- Aggregate liquidation Preference of $175,000, 30 shares authorized, 0 (unaudited) and 0 shares Issued and outstanding Series B, convertible preferred stock, no par value 702,194 702,194 Cumulative dividends, Aggregate liquidation preference of $702,194, per share: 8,000,000 shares Authorized, 702,194 (unaudited) and 702,194 shares issued and Outstanding Series C, convertible preferred stock, no par value -- -- Cumulative dividends, Aggregate liquidation preference of $25,000, 300 shares authorized, 0 (unaudited) and 0 shares issued and outstanding Series D, convertible preferred stock, $0.01 par value -- 18 Cumulative Dividends, aggregate liquidation preference of $1,780,000, 3,500 shares Authorized 0 (unaudited) and 1,780 shares issued outstanding Additional-paid-in-capital, Series D Preferred Stock -- 1,438,526 Common stock, no par value 25,335,964 23,831,804 25,000,000 shares authorized 8,920,946 (unaudited) and 5,725,896 issued and outstanding Accumulated deficit (23,018,330) (23,798,118) ------------ ------------ Total Shareholders' equity 3,019,828 2,174,424 ------------ ------------ Total liabilities and shareholders' equity $ 10,563,948 $ 13,402,912 ============ ============ </TABLE> SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 3

4 BIKERS DREAM INC., DBA ULTRA MOTORCYCLE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 1999(UNAUDITED) <TABLE> <CAPTION> For the Three Months Ended For the Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (unaudited) (unaudited) (unaudited) (unaudited) <S> <C> <C> <C> <C> REVENUES $ 7,037,727 $ 5,798,412 $ 23,252,005 $ 18,108,166 COST OF GOODS SOLD 5,780,108 4,597,733 19,137,964 13,072,714 ------------ ------------ ------------ ------------ GROSS PROFIT 1,257,619 1,200,679 4,114,041 5,035,452 ------------ ------------ ------------ ------------ EXPENSES Selling, general and administrative expenses 841,325 1,326,818 3,275,799 3,856,916 Depreciation and amortization 142,933 138,084 389,147 384,083 ------------ ------------ ------------ ------------ Total expenses 984,258 1,464,902 3,664,946 4,240,999 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS 273,361 (264,223) 449,095 794,453 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (151,240) (193,662) (530,327) (619,378) Interest income 29,366 4,145 67,592 28,517 Other income from litigation and settlements -- -- 622,000 -- Gain sale of technology -- -- 96,000 -- Extinguishment of debt - related party -- -- 366,000 -- Gain on disposal of furniture and equipment -- -- 4,087 -- Other expense, net 10,909 1,541 6,757 4,927 ------------ ------------ ------------ ------------ Total other income (expense) (110,965) (187,976) 632,109 (585,934) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS AND PREFERRED STOCK DIVIDENDS 162,396 (452,199) 1,081,204 208,519 INCOME (LOSS) ON DISCONTINUED OPERATIONS, net of provision for income taxes of $0 (unaudited) 8,239 (233,996) (245,158) (533,093) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDENDS 170,635 (614,996) 836,046 (324,574) PREFERRED STOCK DIVIDENDS, net of forfeited dividends -- (71,107) -- 318,428 ------------ ------------ ------------ ------------ NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS' $ 170,635 $ (543,889) $ 836,046 $ (643,002) ============ ============ ============ ============ BASIC AND DILUTED EARNINGS (LOSS) PER SHARE from continuing operations $ 0.02 $ (0.07) $ 0.13 $ (0.02) from discontinued operations -- $ (0.05) $ (0.03) $ (.010) ------------ ------------ ------------ ------------ TOTAL BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.12) $ 0.10 $ (0.12) ============ ============ ============ ============ BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 7,925,772 5,147,226 7,925,772 5,162,978 ============ ============ ============ ============ </TABLE> SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 4

5 BIKERS DREAM INC., DBA ULTRA MOTORCYCLE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 1999 (UNAUDITED) <TABLE> <CAPTION> September 30, September 30, 2000 1999 ------------- ------------- (unaudited) (unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income from continuing operations $ 1,081,204 $ 208,519 Adjustments to reconcile net income from continuing operations to net cash used in operating activities Gain on sale of furniture and equipment (4,087) -- Depreciation and amortization 389,147 384,083 Accrued interest income (62,367) -- Amortization of loan costs 40,444 120,103 Issuance of stock for services -- 60,000 Extinguishment of debt-related party (366,000) -- Other income from litigation and settlements (622,000) -- Gain on sale of technology (96,000) -- (Increase) decrease in Accounts receivable 530,610 (353,342) Other receivables 18,972 (6,835) Inventories 698,647 (2,171,832) Prepaid expenses and other current assets 170,247 (93,320) Deposits and other assets 19,537 (250,991) (Increase) decrease in Accounts payable (1,622,130) 1,631,711 Accrued expenses (452,166) 300,832 Accrued legal and settlement costs (101,674) -- ----------- ----------- Net cash used in continuing operating activities (377,616) (171,072) Net cash provided by (used in) discontinued operating activities (253,183) 203,716 ----------- ----------- Net cash provided by (used in) operating activities (630,799) 32,644 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of furniture and equipment (97,368) (323,390) Cash received on notes payable 14,690 -- Cash received upon sales of furniture and equipment 16,000 -- Purchase of marketable securities -- (13,045) ----------- ----------- Net cash used in continuing investing activities (66,678) (336,435) Net cash used in discontinued investing activities -- (207,779) ----------- ----------- Net cash used in investing activities (66,678) (544,214) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of notes payable 66,500 -- Payments on notes payable and capital lease obligations (258,258) (178,782) Advances on financing agreements - related parties, net (74,087) (1,126,579) Payments on notes payable - related parties (195,000) -- Debt issuance costs -- (101,859) Proceeds from issuance of preferred stock, net of costs -- 1,367,000 Exercise of warrants -- 159,503 Additional paid-in capital received from related parties -- 107,656 Payment on subscriptions receivable -- 90,000 ----------- ----------- Net cash provided by (used in) continuing financing activities (460,845) 316,939 Net cash provided by (used in) discontinued financing activities -- -- ----------- ----------- Net cash provided by (used in) financing activities (460,845) 316,939 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,158,322) (194,631) Cash and cash equivalents, beginning of period 1,434,781 689,679 ----------- ----------- Cash and cash equivalents, end of period $ 276,459 $ 495,048 =========== =========== </TABLE> SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 5

6 BIKERS DREAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Bikers Dream, Inc., d.b.a. Ultra Motorcycle Company and all of its wholly owned subsidiaries, including the accounts of Ultra Motorcycle Company, Bikers Dream International, Inc., Bikers Dream Distribution, Inc., Bikers Dream Management Services, and Bikers Dream Eagle Enterprises, Inc. (collectively, the "Company"). All significant intercompany accounts and transactions are eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION: Revenue from the sale of motorcycles is recognized upon shipment to the customer. INCOME TAXES: The Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. NET INCOME (LOSS) PER SHARE: The Company utilizes SFAS No. 128, "Earnings per Share." Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares available. Diluted income (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. 6

7 CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method for finished motorcycles and work-in-process inventories and the first-in-first-out (FIFO) method for parts inventories. Finished goods include capitalized overhead costs, which include primarily labor. FURNITURE AND EQUIPMENT: Furniture and equipment, including capitalized leases, are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives or the term of the lease, whichever is less. CONCENTRATION OF RISK: The Company is operating in a growing market due to the current nationwide popularity of custom motorcycles. Its future success is dependent on the continuation of interest in the recreational motorcycle industry. CONCENTRATION OF CREDIT RISK: Other financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable. These concentrations are limited due to the large number of customers comprising the Company's customer base and their dispersion across different geographic regions. The Company performs ongoing credit evaluations of customers and generally does not require collateral. Allowances are maintained for potential credit losses, and such losses have been within management's expectations. As of September 30, 2000, the Company has no significant concentrations of credit risk. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. 7

8 WARRANTY EXPENSES: Included in accrued expenses are accrued warranty expenses. Estimated future warranty obligations related to motorcycles and parts are provided by charges to operations in the period in which the related revenue from the sales of motorcycles or parts is recognized. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for notes payable also approximate fair value because current interest rates offered to the Company for debt of similar maturities are substantially the same. RECLASSIFICATIONS: Certain amounts included in the 1999 financial statements have been reclassified to conform to the 2000 presentation. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The excess of the purchase price over the estimated fair value of the assets acquired has been recorded as excess cost over fair value of net assets acquired, which is being amortized on a straight-line basis over fifteen years. When events and circumstances so indicate, all long-term assets, including the excess cost over fair value of net assets acquired, are assessed for recoverability based upon cash flow forecasts. As of September 30, 2000 the Company has not recognized any impairment losses. DISCONTINUED OPERATIONS: On January 31, 2000, the Company completed the sale of the assets of its Retail Division to V-Twin Holdings, Inc. ("V-Twin"), which is a publicly traded company that is a consolidator of independent motorcycle dealerships. The assets of the Retail Division included the five Company-owned stores located in California, Texas, and North Carolina, substantially all of the fixed assets and inventories at the retail stores, certain intellectual property assets including the trade name "Bikers Dream," and the domain name "bikers-dream.com." As a result of the sale, the results of the operations of the Retail Division have been reclassified as discontinued operations and prior periods have been restated. 3. CONTINGENCIES In November 2000, the Company became aware of a complaint filed on or about September 7, 2000 in a civil action styled People of the State of California ex rel. State 8

9 Air Resources Board v. Ultra Acquisition Corporation, Ultra Acquisition Corporation dba Ultra Cycles/Bikers Dream, Bikers Dream of Santa Ana, Bikers Dream of San Diego, Bikers Dream of Sacramento, Herm Rosenman, Hal Collins and Does 1 through 50, inclusive, in the Superior Court of the State of California, County of Orange, Case No. OOCC10745. The compliant alleges violations of California's motor vehicle air pollution control laws committed by defendants in connection with the sale of motorcycles without required certification by the California State Air Resources Board ("ARB"). The action seeks to enjoin any further violations and to recover a penalty. The Company has initiated discussions with the ARB with the intention of obtaining a prompt resolution of this matter on terms which will not materially impair the Company's financial condition. In addition, the Company will tender the defense of this action to all appropriate insurance carriers. The Company does not have sufficient information regarding the claims which are the subject of the complaint to assess the likely outcome of this matter. Accordingly, no assurance can be given as to the ultimate outcome of this matter. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters discussed in this Quarterly Report on Form 10-QSB are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes", "anticipates", "expects", "estimates", or words of similar meaning. Similarly, references to the Company's future plans, objectives or goals are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and under the heading "Certain Trends and Uncertainties" below. These risks and uncertainties could cause the actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements, and are cautioned not to rely on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. GENERAL From 1990 until 1996, the Company operated primarily as a motorcycle retailer. Prior to 1997, the Company was attempting to establish a network of franchised Bikers Dream stores, but suspended such efforts at the end of 1996. In 1997, the Company established its Motorcycle Manufacturing and Distribution ("Motorcycle") division by completing the acquisition of the motorcycle and parts manufacturing assets of Ultra Kustom Cycles. Since the acquisition of the Motorcycle Division, the Company has devoted a significant 9

10 amount of resources to restructuring and repositioning the Company from a retailer to a premier motorcycle manufacturer and distributor. Between 1997 and 1999, the Company operated two divisions: Motorcycle and Retail Stores (the "Retail Division"). The Retail Division sold motorcycles, after-market parts and accessories and performed service work on motorcycles at five Superstores in Santa Ana, Sacramento and San Diego, California, Farmers Branch, Texas, and Conover, North Carolina, licensed the Company's intellectual property and use of its business model and operating manuals to approximately 16 independently owned Bikers Dream Superstores, and operated an e-commerce site for the sale of motorcycle parts, accessories and apparel. On January 31, 2000, the Company sold to V-Twin Holdings, Inc. ("V-Twin") the assets related to the operation of the Retail Division. The assets sold included all fixed assets, inventory and equipment used in the Retail Division, the right to operate the Retail Division under the assumed name "Bikers Dream", all intellectual property assets relating to the Retail Division, the right to use the domain name "bikers-dream.com", all rights under license agreements with independently owned Bikers Dream Superstores, and rights under real property leases and equipment leases. The sale of the Retail Division has enabled the Company to focus on strengthening its core motorcycle manufacturing business. Since the sale on January 31, 2000, the Company has been focused on restructuring the Company to meet the needs of a manufacturer of motorcycles, including the development of a profitable and stable dealer base, and the resolution of those issues discussed in Part II, Item 6 of the Company's Annual Report for the fiscal year ended December 31, 1999 under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook and Ability of Company to Continue as Going Concern." Although no assurances can be given, the Company expects to expand its market share through the introduction of new highly styled performance motorcycle models and the addition of dealers in geographic regions of the country with longer riding seasons. In addition to emphasizing quality control of its manufactured product, the Company is beginning to develop its customer service infrastructure and has recently introduced an Ultra motorcycle owners club and is redesigning its web site "www.ultracycles.com". The club will provide a forum for Ultra owners to participate in riding events and to exchange information. RESULTS OF OPERATIONS During 1999, the Company conducted its operations through two operating divisions: Motorcycle and Retail. The Motorcycle division manufactures large displacement "V" twin powered heavyweight cruiser motorcycles at the Company's Mira Loma, California facility. Prior to its sale in January 2000, the Retail Division sold new and used motorcycles, parts and accessories through the Company's five owned Superstores. As noted above, in January 2000, the Company sold to V-Twin Holdings, Inc. the assets related to the operation of the Retail Division. As stated in Note 2 to the Company's financial statements filed with the Company's Annual Report on Form 10-KSB for the 10

11 fiscal year ended December 31, 1999, and Note 2 to the financial statements included in this report, the results of operations of the Retail Division have been reclassified as discontinued operations and prior periods have been restated. COMPARISON OF THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999 REVENUES. Revenues for the three months ended September 30, 2000 were $7,038,000 as compared to $5,798,000 for the comparable period in 1999, representing an increase of $1,240,000 or 21%. The Company attributes a large portion of the increase in revenues to sales of its new "Fat Pounder" model, which was introduced as a 2000 model in late 1999 and the introduction of its "Sledgehammer" model in early August, 2000. The number of motorcycles sold during the three months ended September 30, 2000 decreased to 365, from 404 for the comparable period in 1999, while the number of dealerships decreased to approximately 80 at September 30, 2000, from 100 for the comparable period in 1999. As a result, dealer sales productivity (the number of motorcycles sold to dealers divided by the number of dealers) increased from an average of approximately 1.3 motorcycles per month for the three months ended September 30, 1999, to an average of approximately 1.4 motorcycles per dealer per month for the three months ended September 30, 2000. COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the three months ended September 30, 2000 was $5,780,000 or 82% of revenues), as compared to $4,598,000 (representing 79% of revenues) for the comparable period a year earlier, representing an increase of $1,182,000 or 26%. Cost of goods sold include direct and indirect manufacturing costs, administrative costs to purchase and sell Ultra Kustom parts, warranty costs, and costs related to the assembly of motorcycles. The Company attributes the increase of $1,182,000 in cost of goods sold to higher material and labor costs (including increased payroll taxes and benefits) related to the increased level of motorcycle sales during the period, costs of making quality improvements, and sales of models during the period with higher manufacturing costs than models sold during the same period in 1999. During the three-month period ended September 30, 2000, warranty expenses decreased by approximately $380,000 from the expenses incurred in the three-month period ended September 30, 1999 as a result of a decrease in the number of claims and the cost per claim. This improvement was partially offset by charges made for obsolete inventory and shrinkage which were higher than the period a year ago by approximately $162,000. As described in the Company's Annual Report on Form 10-KSB for the fiscal year period ended December 31, 1999, the Company incurred a significant increase in warranty expense from $842,000 for the fiscal year ended December 31, 1998 to $1,795,000 for the fiscal year ended December 31, 1999, representing an increase of $954,000 or approximately 113%. Included in the $1,795,000 figure was an increase of $247,000 in the fourth quarter of 1999 to increase the contingency of liabilities on units sold under warranty. During the three month period ended September 30, 2000, warranty costs declined from $703,000 for the three month period ended September 30, 1999 to 11

12 $323,000 for the three month period ended September 30, 2000, representing a decrease of $380,000 or 54%. Gross profit for the three months ended September 30, 2000 was $1,258,000 (representing 18% of revenues), as compared to $1,201,000 (representing 21% of revenues) for the three month period ended September 30, 1999. This represents an increase in gross profit of $57,000 or 5%. Gross profit as a percentage of revenues (i.e., gross margin) for the three months ended September 30, 2000 was 18% or 3% lower than the 21% gross margin for the three months ended September 30, 1999. The gross margin for the three months ended September 30, 2000 was adversely impacted by the cost increases discussed above and by sales discounts given during the current period. The discounts were made to help dealers sell the 2000 models in their inventory and to replace them with the new 2001 models. These cost increases were reduced by the March price increase of approximately 7% which became fully implemented in the current fiscal quarter. The March 2000 price increase is discussed in detail under the subheading "Comparison of the Nine Months ended September 30, 2000 and 1999 -- Cost of Goods Sold, Gross Profit". As described in Note 14 in the Financial Statements in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, the Company recognized an aggregate of $969,000 of charges to cost of goods sold in connection with three significant adjustments that were all recorded in the fourth quarter. The periods attributed to these charges could not be identified by the Company's management. If these charges recorded in the fourth quarter of 1999 were attributed to the first three quarters of 1999, the gross profit for these quarters would have been lower than reported in the unaudited interim financial statements for such periods. EXPENSES. Selling, general and administrative expenses were $841,000 or 12% of sales for the three months ended September 30, 2000, as compared to $1,327,000 or 23% of sales, for the three months ended September 30, 1999. Selling, general, and administrative expenses consist primarily of corporate operating expenses, professional fees, and salaries. The decrease of $485,000 is largely attributable to decreased advertising, decreased use of temporary employees, decreased use of consultants, decreased loan origination fees (financial audits) and reduced travel and lower administrative salaries. Depreciation and amortization expense for the three months ended September 30, 2000 totaled $143,000 as compared to $138,000 for the same period in 1999. The expense recorded in 1999 is $5,000 lower than September 30, 2000 as a result of disposals of equipment made in fiscal year 1999. OPERATING INCOME FROM CONTINUING OPERATIONS. As a consequence of the foregoing, the operating income from continuing operations for the three months ended September 30, 2000 increased to $273,000 as compared to an operating loss from 12

13 continuing operations of $264,000 for the three months ended September 30, 1999, an increase in profitability of $538,000. OTHER INCOME (EXPENSE). For the three months ended September 30, 2000, other expense totaled $111,000 in comparison with total other expenses of $188,000 for the three months ended September 30, 1999, a decrease of $77,000. Other expenses decreased as a result of lower interest payments and increased interest income. INCOME BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED OPERATIONS, PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION. Income before provision for income taxes, discontinued operations, preferred stock dividends and beneficial conversion for the three months ended September 30, 2000 was $162,000 and consists of the operating income from continuing operations of $273,000 and other expense of $111,000 as previously described above. INCOME TAXES. The provision for income taxes for the three-month period ended September 30, 2000 is $0. The Company has fully reserved for the deferred tax asset related to its net operating loss carry-forwards. The Company's management has concluded that, based upon its assessment of all available evidence, the future benefit of this asset cannot be projected accurately at this time. LOSS ON DISCONTINUED OPERATIONS. In accordance with APB No. 30, in order to record the loss on disposal of its Retail Division for the year ended December 31, 1999, the Company estimated the future operating losses of the Retail Division for the period up until the sale of the division, which was January 31, 2000. As described in the Company's report on Form 10-QSB for the quarter ended March 31, 2000, during the quarter ended March 31, 2000, the Company recognized an adjustment on the provision for losses on discontinued operations in the amount of $139,000. This adjustment was primarily attributable to an increase of the reserve balance on accounts receivable at the Retail Division. During the three-month period ending September 30, 2000 the Company recorded miscellaneous reductions (related to accrued expenses) to the provision which reduced expenses by $8,000 for the three-month period ended September 30, 2000. In comparison the loss on discontinued for the three months ended September 30, 1999 was $234,000. The total provision for the expense incurred in the discontinued operations is net of a provision for income taxes of $0. PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C PREFERRED STOCKHOLDERS. During the three months ended September 30, 2000, there were no costs associated with preferred stock dividends or beneficial conversion features. NET INCOME AVAILABLE TO COMMON STOCKHOLDERS. For the three months ended September 30, 2000, the net income available to common stockholders was $171,000 as compared to a net loss of $615,000 for the same period in fiscal 1999. The increased profitability of $786,000 is the result of an increase in income from operations and the decrease in other expense as described above. 13

14 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 REVENUES. Revenues for the nine months ended September 30, 2000 were $23,252,000 as compared to $18,108,000 for the comparable period in 1999, representing an increase of $5,144,0000 or 28.4%. The number of motorcycles sold during the nine months ended September 30, 2000 increased to 1,239, from 1,169 for the comparable period in 1999, while the number of dealerships decreased to approximately 80 at September 30, 2000, from 100 for the comparable period in 1999. As a result, dealer sales productivity (the number of motorcycles sold to dealers divided by the number of dealers) increased from an average of approximately 1.0 motorcycles per dealer per month for the nine months ended September 30, 1999, to an average of approximately 1.7 motorcycles per dealer per month for the nine months ended September 30, 2000. COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the nine months ended September 30, 2000 was $19,138,000 (representing 82% of revenues), as compared $13,073,000 (representing 72% of revenues) for the comparable period a year earlier, representing an increase of $6,065,000 or 46%. Cost of goods sold includes direct and indirect manufacturing costs administrative costs to purchase and sell Ultra Kustom parts, warranty costs, and costs related to the assembly of motorcycles. The Company attributes $5,744,000 of the increase in cost of goods sold to higher material, labor and freight costs related to motorcycle production during the period and an increase of $674,000, for charges made for obsolete inventory and inventory shrinkage, in comparison to those costs incurred in the nine months ended September 30, 1999. Warranty expense for the period ending September 30, 2000 was lower than warranty expense incurred the period ended September 30, 1999 by $353,000 as the costs incurred decreased on a per claim basis. Gross profit for the nine months ended September 30, 2000 was $4,114,000 (representing 18% of revenues), as compared to $5,035,000 (representing 28% of revenues) for the period ended September 30, 1999. This represents a decrease in gross profit of $921,000 or 18%. The decrease in gross profit as a percentage of revenues (i.e., gross margin) are attributable to the increase in cost of goods sold as described above and sales discounts given to dealers as described above in the discussion of results for the three months ended September 30, 2000. The decrease in gross profit for the nine month period ended September 30, 2000 also can be attributed to the pricing of the Company's 2000 model year motorcycles. When the Company designed and determined the cost of manufacture of its 2000 model year motorcycles, it implemented a price increase that it believed would maintain the historical rate of gross profit. In February 2000, the Company reviewed its manufacturing costs and determined that its earlier cost estimates were lower than the actual costs of manufacture. As a result, the Company implemented a price increase of approximately 7 percent, effective March 1, 2000, on orders received after March 1, 2000. The Company 14

15 will continue to monitor its production cost and when required, make the appropriate price increases. In addition, the Company has initiated a material cost reduction program to reduce manufacturing costs. While the Company believes that it will be able to return to previous levels of gross profit, no assurances can be given that gross profit will increase in the future. As described in Note 14 in the Financial Statements in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, the Company recognized an aggregate of $969,000 of charges to cost of goods sold in connection with three significant adjustments that were all recorded in the fourth quarter. The periods attributed to these charges could not be identified by the Company's management. If these charges recorded in the fourth quarter of 1999 were attributed to the first three-quarters of 1999, the gross profit for these quarters would have been lower than reported in the unaudited interim financial statements for such periods. EXPENSES. Selling, general and administrative expenses were $3,276,000 or 14% of sales for the nine months ended September 30, 2000, as compared to $3,857,000 or 21% of sales, for the nine months ended September 30, 1999. Selling, general, and administrative expenses consist primarily of corporate operating expenses, professional fees, and salaries. The decrease of $581,000 is primarily attributable to a decrease in advertising expenses of approximately $154,000 resulting from a decrease in media advertisements. As part of the Company's restructuring, costs were also reduced in controllable areas such as catalog and literature production (a reduction of approximately $104,000), travel and entertainment (a reduction of approximately $83,000) and loan origination fees (a reduction of approximately $60,000 fees charged by potential lenders to audit the Company financial records). In addition to the reductions described above, the Company was able to reduce salaries by approximately $100,000 and all other controllable expenses were reduced by approximately $80,000 in comparison to the nine-month period ended September 30, 1999. Depreciation and amortization expense for the nine months ended September 30, 2000 totaled $389,000 as compared to $384,000 for the same period in 1999. OPERATING INCOME FROM CONTINUING OPERATIONS. As a consequence of the foregoing, operating income from continuing operations for the nine months ended September 30, 2000 was $449,000 as compared to an operating income from continuing operations of $794,000 for the nine months ended September 30, 1999. OTHER INCOME (EXPENSE). For the nine months ended September 30, 2000 other income totaled $632,000 in comparison with total other expenses of $586,000 for the nine months ended September 30, 1999 or an increase of $1,218,000. Other income includes $622,000 under the line item entitled "Other income from litigation and settlements," of which $613,000 represents a reduction of liabilities recorded on December 31, 1999 for the negotiated settlement of the Kinnicutt lawsuit. Other income 15

16 also includes $366,000 under the line item entitled "Extinguishment of debt - related party," which represents the negotiated reduction of notes payable held by w3 Holdings (which includes interest that was forgiven). (See also discussion of settlement under the caption below entitled "General Discussion of Liquidity and Capital Resources.") In addition to the foregoing, other income also includes a gain on the sale of technology in the amount of $96,000. INCOME BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED OPERATIONS, PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION. Income before provision for income taxes, discontinued operations, preferred stock dividends and beneficial conversion for the nine months ended September 30, 2000 was $1,081,000 and consists of the operating income from continuing operations of $449,000 and other income of $632,000. INCOME TAXES. The provision for income taxes for the nine-month period ended September 30, 2000 is $0. The Company has fully reserved for the deferred tax asset related to its net operating loss carry-forwards. The Company's management has concluded that, based upon its assessment of all available evidence, the future benefit of this asset cannot be projected accurately at this time. LOSS ON DISCONTINUED OPERATIONS. In accordance with APB No. 30, in order to record the loss on disposal of its Retail Division for the year ended December 31, 1999, the Company estimated the future operating losses of the Retail Division for the period up until the sale of the division, which was January 31, 2000. During the first nine months of 2000, it became evident that the provision as of December 31, 1999 made for the operating loss for the period ended January 31, 2000 was deficient by approximately $245,000. This adjustment to the operating loss of discontinued operations is primarily attributable to an increase of the reserve balance for uncollected accounts receivable at the Retail Division of $190,000 and an adjustment of $63,000 to recognize the write off of certain assets related to the settlement litigation arising from the operation of a retail location in Daytona Beach, Florida, and a recovery of approximately $8,000 on other estimated costs. The operating loss of $245,000 for discontinued operations is net of a provision for income taxes of $0. PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C PREFERRED STOCKHOLDERS. During the nine months ended September 30, 2000, there were no costs associated with preferred stock dividends or beneficial conversion features. However, during the nine months ended September 30, 1999 costs were recognized for the Series D preferred stock a beneficial conversion feature, which totaled $318,000. NET INCOME/(LOSS) AVAILABLE TO COMMON STOCKHOLDERS. For the nine months ended September 30, 2000, the net income available to common stockholders was $836,000 as compared to a net loss of $643,000 for the same period in fiscal 1999. The increased profitability of $1,479,000 is the result of operating income of $449,000 and 16

17 other income of $632,000 less the loss on discontinued operations of $245,000 as explained in the preceding discussion. GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. The Company finances the manufacture of its motorcycles from proceeds of sales. Most of the Company's vendors require payment terms of 30 days or less. Other than for certain extraordinary liabilities as described below under the caption entitled "Ability of the Company to Continue as a Going Concern," management believes that the Company can, at its current level of operations, adequately meet its liabilities, including liabilities to vendors, by using available internal cash. In the past, the Company has also looked to outside funding sources to address its liquidity and working capital needs. These include private equity placements and secured debt-financing arrangements with lenders. EXISTING FINANCING ARRANGEMENTS In April 1998 the Company completed a private placement of Series C Convertible Preferred Stock, which generated approximately $3.75 million in cash. In June 1998, the Company obtained a three-year senior secured loan in the amount of $4.5 million from Tandem Capital of Nashville, Tennessee. Tandem subsequently assigned the loan to FINOVA Mezzanine Capital, Inc. The loan bears interest at 12% per annum and stipulates quarterly interest payments. The FINOVA loan is secured by a first priority lien on substantially all of the Company's assets. FINOVA received warrants to purchase a total of 457,500 shares of the Company's common stock, after giving effect to the Company's 5-for-1 reverse stock split effective on February 5, 1998. Of these warrants, 87,500 are exercisable at a price of $5 per share and expire in November 2002. The remaining 370,000 warrants are exercisable at an initial exercise price equal to $4 1/16 payable in cash or in-kind by debt cancellation and expire in June 2003. The exercise price of the 370,000 warrants is reset on the first anniversary of the closing of the loan at the lesser of (i) $4 1/16 or (ii) the average closing bid price of the Company's Common Stock for the 20 trading days immediately preceding such anniversary. In addition, under the FINOVA loan agreement, the Company is obligated to issue to FINOVA on each anniversary of the closing date of the loan, until the loan is paid in full, a warrant to purchase 200,000 additional shares of Common Stock at an exercise price equal to the greater of (i) $4.00, or (ii) 80% of the average closing bid price of the Company's Common Stock for the 20 days preceding such anniversary date. Each such warrant shall be exercisable for five years from the date of issue. The proceeds of the FINOVA loan were used to repay $2.5 million of then-existing long-term debt, with the remaining $2 million used to expand the Company's motorcycle manufacturing operations. Since the original closing date, the Company has become obligated to issue a warrant to purchase 400,000 additional shares of Common Stock in accordance with the terms of the FINOVA loan agreement as set forth above. Prior to the quarter ended June 30, 2000, the Company's indebtedness to FINOVA in the amount of $4,500,000 had been classified as a non-current liability on the Company's 17

18 consolidated balance sheet. As of June 30, 2000 the FINOVA note is required to be shown as a current liability. In May 1998 the Company entered into an agreement with Cana Capital Corporation, a company owned by Bruce Scott, a former director of the Company, pursuant to which Cana Capital would provide $1.5 million in floor financing for the Company's motorcycles. In April 1999 Cana Capital elected to terminate the flooring agreement. Thereafter, Cana Capital allowed the Company several months to pay off the balance on the floor financing. In approximately August 1999, a dispute arose between Cana Capital and the Company as to claims the Company had against Cana Capital, which offset part of the balance remaining on the floor financing. Cana Capital subsequently filed suit against the Company in the Circuit Court for the Fourth Judicial Circuit, Duval County, Florida. The Company defended the action and cross-complained against Cana Capital to offset the balance owed on the floor financing, which, according to the Company's records, was approximately $235,000 as of June 30, 2000. Advances under the Cana Capital line of credit had an interest of rate of 2% over the prime rate if used to finance the acquisition of new vehicles, and 5% over the prime rate if used to finance the acquisition of used vehicles. In July 2000 the Company successfully reached a settlement agreement with Cana Capital and Mr. Scott which required payment by the Company to Cana Capital by July 31, 2000. On July 28, 2000, the Company fulfilled its obligations under the settlement agreement. In exchange for the payment, Cana Capital agreed to provide the Company the original title to motorcycles financed under the Cana Capital floor line and has dismissed its suits with prejudice. In October 1998, the Company obtained a bridge loan in the amount of $300,000 from MD Strategic L.P. ("MD Strategic"), a partnership in which Don Duffy, a former director of the Company, is a principal. The loan was originally evidenced by an unsecured note bearing interest at 18% per annum and was due, together with accrued interest, on the earlier of December 31, 1999 or upon receipt by the Company of funds from a third-party lender. In January 2000, MD Strategic assigned the note, on which there was, accrued approximately $82,200 in interest and fees, to W3 Holdings, Inc. ("W3 Holdings"). W3 Holdings extended the term of the note to March 31, 2000. On July 5, 2000 the Company completed an agreement on the payment of the debt with W3 Holdings as described below. In November 1999, the Company obtained a second bridge loan in the amount of $300,000 from William Whalen, a stockholder of the Company. The loan originally was evidenced by two promissory notes in the principal amounts of $200,000 and $100,000 respectively, each bearing interest at a rate of 12% per annum and maturing on September 30, 2000. In January 2000, the notes were replaced by two amended and restated promissory notes in the principal amounts of $156,638 and $150,000, respectively. The amended and restated $156,638 note evidences $150,000 of the principal amount of the original $200,000 note, $4,338 of accrued interest on the original $200,000 note and $2,300 of accrued interest on the original $100,000 note. The amended and restated $150,000 note evidences the entire principal amount of the original $100,000 note, plus $43,362 of their original principal amount of the $200,000 note. Both 18

19 the $156,638 and $150,000 amended and restated notes bear interest at a rate of 12% per annum and were scheduled to mature on March 31, 2000. Mr. Whalen subsequently assigned the amended and restated note in the amount of $150,000 to W3 Holdings, while continuing to hold the amended and restated note in the amount of $156,638. In July 2000, the Company reached a settlement of its obligations owing on the two promissory notes held by w3 Holdings. The combined sum of principal and interest owing on the notes was approximately $560,000 at the time the settlement was reached. The Company negotiated a compromise payment of $195,000 to extinguish all indebtedness on the note. Final payment of the $195,000 was made on July 20, 2000. Mr. Whalen has agreed in principle to extend to March 2001 the maturity date of the $156,638 note, on which there was accrued $12,771 in interest as of September 30, 2000. The Company is continuing to negotiate with Mr. Whalen to obtain an additional extension of the maturity date to 2002. In February 1999 and October 1999, the Company received an aggregate of $1,665,000 (net of issuance costs) upon the issuance of 2,060 shares of Series D Convertible Preferred Stock, each share having a stated value of $1,000. (60 out of the 2,060 shares were issued in payment of placement agent fees, and therefore the Company did not receive cash for those shares.) As of March 10, 2000, all issued and outstanding shares of Series D Convertible Preferred Stock, having an aggregate stated value of $2,060,000, plus accrued and unpaid dividends on such shares, had been converted into a total of 3,728,452 shares of common Stock. The number of shares of Common Stock issued upon the conversion of each share of Series D Convertible Preferred Stock was calculated by adding $1,000 to the amount of accrued and unpaid dividends on such share and dividing the resulting sum by the conversion price. The conversion price was equal to the lesser of (i) 110% of the closing bid price of the Common Stock on the last trading day before the date of issuance of the share of Series D Preferred Stock being converted, or (ii) 90% of the average of the four lowest closing bid prices of the Common Stock during the last 22 trading days before the date of conversion. CONSOLIDATED STATEMENT OF CASH FLOWS. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Net cash used in operating activities for the nine month period ended September 30, 2000 was $631,000 as compared to net cash provided by operating activities of $33,000 for the period ended September 30, 1999. Net cash used in operating activities includes net cash used in continuing operating activities and net cash used in discontinued operating activities. Discontinued operations consist of the Retail Division that was sold on January 31, 2000. Net cash used in continuing operating activities for the nine month period ended September 30, 2000, was $378,000 as compared, to $171,000 for the comparable period in 1999, representing a change of approximately $207,000. During the nine months ended September 30, 2000, the primary use of cash was in the reduction of trade accounts payable of $1,622,000 and a decrease of accrued expenses of $452,000, which was partially offset by cash provided by improved collection of motorcycle receivables as 19

20 accounts receivable decreased $531,000 and utilization of inventory, which decreased by $699,000. The net cash used in discontinued operating activities was $253,000 for the nine-month period ended September 30, 2000. For the same period in 1999, the discontinued operations used cash totaling $204,000. Net cash used in investing activities is $67,000 for the nine month period ended September 30, 2000, as compared to $544,000 net cash used in investing activities for the same nine month period in 1999. The principal use of cash during the nine months ended September 30, 2000 was the purchase of a trade show exhibit booth. The principal use of cash for the period ended September 30, 1999 was the purchase of assets related to the move to the Mira Loma facility and the implementation of new computer hardware and software that totaled $323,000. During the nine-month period ended September 30, 1999 $208,000 was used by the discontinued operations. Net cash used by financing activities for the nine month period ended June 30, 2000 is $461,000 and consists advances on financing agreements, payments on notes payable and capital lease obligations of approximately $528,000, after refinancing the SBA loan of $67,000 related to the Kinnicutt settlement, and repayments of advances on floor plan financing from Cana Capital of approximately $74,000. Net cash provided by financing activities for the nine month period ended June 30, 1999 was approximately $317,000. This sum consisted of primarily the proceeds from the placement of the Series D Preferred Stock in February 1999 of approximately $1,367,000. The exercise of Series C Warrants provided cash of $160,000 during the period. The principle use of cash during the nine-month period ended September 30, 1999 was the payment made to retire debt on the Cana Capital floor plan financing which was reported under the line item titled "Advances on financing agreements-related party" and totaled $1,127,000. For the nine months ended September 30, 2000, there was a net decrease in cash and cash equivalents of $1,158,000. The primary use of cash during the nine month period consisted of approximately $1,622,000 used in the reduction of trade accounts payable and $461,000 used to make payments on notes payable, lease obligations and financing agreements. Cash was provided through improved collection of accounts receivable of $531,000 and use of inventory which decreased $699,000. For the nine months ended September 30, 1999 the net decrease in cash and cash equivalents was approximately $195,000. The major source of cash during the period was the approximately $1,367,000 in net proceeds from the sale of Series D preferred stock. Cash of $1,127,000 was used to make payments on the Cana Capital floor plan financing. The other significant use of cash in the period was for the relocation of the Company to Mira Loma and the resulting fixed asset additions, which totaled $323,000. 20

21 OUTLOOK AND ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN As described in their independent accountants' report dated April 4, 2000 which appears in the Company's Annual Report for fiscal 1999 on Form 10-KSB, and in Note 2 to the Company's financial statements appearing in that annual report, entitled "Summary of Significant Accounting Policies -- Going Concern and Basis of Presentation", the Company's independent auditors state that the Company has incurred recurring losses from operations, and that its total liabilities exceed its tangible assets as of December 31, 1999. In Part II, Item 6 of the Company's annual report on Form 10-KSB for the fiscal year ended December 31, 1999, under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook and Ability of Company to Continue as a Going Concern," the Company described several extraordinary liabilities that were of primary concern to the Company. These included the Company's liability under the promissory notes held by w3 Holdings and Mr. Whalen, the Company's liability to pay the judgment in the Kinnicutt lawsuit, as described in Part II, Item 1 of the Company's report on Form 10-QSB for the quarter ended June 30, 2000, and the Company's obligation to repay its $4,500,000 loan from FINOVA Capital Corporation when that loan becomes due in June 2001. As discussed above, the Company has satisfied the indebtedness owing to w3 Holdings in full. The Company has also settled its lawsuit with Cana Capital Corporation and Bruce Scott, as discussed above. The Company also has settled the Kinnicutt litigation as described in Part II, Item 1 of the Company's report on Form 10-QSB for the quarter ended June 30, 2000. Finally, as discussed above under the caption "Existing Financing Arrangements," Mr. Whalen has agreed in principle to extend to at least March 31, 2001 the maturity date of the $156,638 note, on which there was accrued $12,771 in interest as of September 30, 2000. The Company is continuing to negotiate with Mr. Whalen to obtain an additional extension of the maturity date to 2002. As a result of the foregoing, as of the date of the filing of this report, the Company has settled or discharged liabilities of approximately $1,600,000. Although cash payments made to date of $199,000 together with future payments of approximately $65,000 to settle these matters have reduced the Company's current liquidity, management remains confident that it can continue to meet its obligations to vendors and suppliers through the generation of operating income. However, no assurances can be given. The remaining significant liability of the Company is the Company's obligation to repay its $4,500,000 secured loan from FINOVA Capital Corporation when that loan matures in June 2001. As noted above, the Company has reclassified this loan on its consolidated balance sheet as of September 30, 2000 as a current liability. The Company may not be able to repay the FINOVA loan unless it obtains an extension, or refinancing on terms 21

22 acceptable to the Company. The ability of the Company to extend or refinance the FINOVA loan will be affected by, among other factors, the ability of the Company to sustain profitability by the loan's maturity date. While the Company had net income of approximately $1,474,000 for the fiscal quarter ended June 30, 2000 and net income of approximately $171,000 for the fiscal quarter ended September 30, 2000, the Company has a prior history of operating losses and accumulated deficit. See discussion below under the caption entitled, "Certain Trends and Uncertainties -- The Company may not be able to implement the changes necessary to sustain profitability in future periods." There can be no assurances that the Company will be able to sustain profitability in future periods. If the Company is unable to extend or refinance the FINOVA loan at maturity, whether due to the Company's inability to sustain profitability or for other reasons, such event will have a material adverse effect on the Company's financial condition. The ability of the Company to continue generating a profit is paramount to resolving its working capital issues and to obtain an extension or refinancing of the FINOVA loan when that loan matures in June 2001. The Company's ability to sustain profitability in future periods will depend upon a number of factors, including the ability of the Company to introduce new products, increase sales, and maintain a level of production which is responsive to seasonal demands. Management believes that several steps can be taken to sustain profitability. These include implementation of better internal controls, reduction of expenses, improvements in purchasing, cash management, and inventory control. In addition, the Company plans to increase consumer awareness of its products through effective advertising and improved customer relations by increasing its dealer network. However, there can be no assurances that the Company will be able to successfully implement any of the changes described above, or that the Company will in fact achieve profitability in future periods. Any additional equity financing which the Company may obtain in the future may be dilutive to shareholders, and any additional debt financing may impose substantial restrictions on the ability of the Company to operate and raise additional funds. SEASONALITY Generally, the Company's Motorcycle division exhibits a moderate level of seasonality as dealer demand for motorcycles tends to increase in the second and third quarters as motorcycle sales are greatest in the spring and summer months. INFLATION While the Company does not expect inflation to have a material impact upon its operating results, there can be no assurance that inflation will not affect the Company's business in the future. 22

23 CERTAIN TRENDS AND UNCERTAINTIES In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby filing cautionary statements identifying important risk factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements of the Company made by or on behalf of the Company. The Company wishes to caution readers that these factors, among others, could cause the Company's actual results to differ materially from those expressed in any projected, estimated or forward-looking statements relating to the Company. The following factors should be considered in conjunction with any discussion of operations or results by the Company or its representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications by the Company. In making these statements, the Company is not undertaking to address or update each factor in future filings or communications regarding the Company's business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, certain of these matters may have affected the Company's past results and may affect future results. THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT THE CHANGES NECESSARY FOR THE COMPANY TO REMAIN A GOING CONCERN. Due to the Company's prior history of operating losses and working capital deficiency, Singer Lewak Greenbaum & Goldstein LLP, the Company's auditors, have included an explanatory paragraph in their report to the Company's consolidated financial statements for the year ended December 31, 1999 that expresses substantial doubt as to the Company's ability to continue as a going concern. There can be no assurances that the Company will be able to successfully implement the changes necessary for the Company to remain a going concern. See "Report of Independent Certified Public Accountants", dated April 4, 2000, included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999 filed with the Securities and Exchange Commission on April 14, 2000. See also paragraph below entitled, "The Company may not be able to implement the changes necessary to sustain profitability in future periods." THE COMPANY MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO SUSTAIN PROFITABILITY IN FUTURE PERIODS. While the Company had net income of approximately $1,474,000 for the fiscal quarter ended June 30, 2000 and net income of approximately $171,000 for the fiscal quarter ended September 30, 2000, the Company has a prior history of operating losses and accumulated deficits. The Company had a net operating loss of approximately $809,000 for the fiscal quarter ended March 31, 2000. Prior to that period, the Company had operating net losses of approximately $6.1 million and $5.7 million for the fiscal years 23

24 ended December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company's accumulated deficit was approximately $23,798,000. The Company may not be able to implement the changes necessary to sustain profitability in future periods. These changes include implementation of better internal controls, reduction of expenses, and improvements in purchasing, cash management, and inventory control. The Company's ability to sustain profitability will also depend upon other factors, including the ability of the Company to introduce new products, increase sales and maintain a level of production, which is responsive to seasonal demands. There can be no assurances that the Company will be able to successfully implement any of these changes, or that the Company will be able to sustain profitability in future periods. THE COMPANY MAY NOT BE ABLE TO REPAY OR REFINANCE ITS EXISTING SECURED TERM LOAN ON TERMS ACCEPTABLE TO THE COMPANY. The Company's $4.5 million secured term loan with FINOVA Mezzanine Capital expires in June 2001. See discussion in Part I, Item 2, of this report, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -General Discussion of Liquidity and Capital Resources." The Company may not be able to repay the FINOVA loan unless it obtains an extension or refinancing on terms acceptable to the Company. The ability of the Company to extend or refinance the FINOVA loan will be affected by, among other factors, the ability of the Company to sustain profitability by the loan's maturity date. While the Company had net income of approximately $1,474,000 for the fiscal quarter ended June 30, 2000 and net income of approximately $171,000 for the fiscal quarter ended September 30, 2000, the Company has a prior history of operating losses and accumulated deficits. The Company had a net operating loss of approximately $809,000 for the fiscal quarter ended March 31, 2000. Prior to that period, the Company had operating net losses of approximately $6.1 million and $5.7 million for the fiscal years ended December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company's accumulated deficit was approximately $23,798,000. See discussion above under the caption entitled, "The Company may not be able to implement the changes necessary to sustain profitability in future periods." There can be no assurances that the Company will be able to sustain profitability in future periods. If the Company is unable to extend or refinance the FINOVA loan at maturity, whether due to the Company's inability to sustain profitability or for other reasons, such event will have a material adverse effect on the Company's financial condition. IF THE AMOUNT OF CAPITAL NEEDED TO FUND OPERATIONS EXCEEDS CURRENT ASSETS, THE COMPANY MAY NOT BE ABLE TO OBTAIN ADDITIONAL EQUITY OR DEBT FINANCING. If the Company needs to seek additional debt or equity financing in the future, there is no assurance that sufficient financing will be available or, if available, that it will be on terms favorable to the Company or its shareholders. Any additional equity financing may cause substantial dilution to the Company's existing equity holders. Many factors may cause the amount of 24

25 capital needed to fund operations to exceed current estimates, including, among other unanticipated events, the Company's inability to: - increase quarterly production volume; - lower per unit production costs; - control departmental costs; or - manage inventory effectively. Additional financing may not be available on terms favorable to the Company, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of business opportunities. In addition, if the Company elects to raise capital by issuing additional shares of stock, existing stockholders may incur dilution. THE COMPANY'S COMMON STOCK WAS DELISTED FROM THE NASDAQ SMALL CAP MARKET EFFECTIVE OCTOBER 18, 2000, WHICH MAY MAKE IT DIFFICULT FOR THE COMPANY'S SHAREHOLDERS TO BUY, SELL AND OBTAIN PRICING INFORMATION ABOUT THE COMPANY'S COMMON STOCK. Effective October 18, 2000, the Company's Common Stock was delisted from The NASDAQ Small Cap Market due to the failure of the Company to evidence a closing bid price of at least $1.00 per share since April 4, 2000, as well as the failure of the Company to comply with NASDAQ Marketplace Rule 4310(c)(2)(B)(iii) in that it has failed to demonstrate net income of at least $500,000 in the latest fiscal year. The Company's Common Stock previously had been listed on The NASDAQ Small Cap Market since June 1998 under the symbol "BIKR." The Company's Common Stock is currently trading on the OTC Bulletin Board under the symbol "BIKR.OB". The delisting could have an adverse effect on the Company's business prospects. The NASDAQ market system provides brokers and others with immediate access to the best bid and asked prices, as well as other information, about the Company's common stock. With the loss of the designation, shareholders may find it more difficult to buy, sell and obtain pricing information about our common stock. The Company also risks no longer qualifying as a "margin security" as defined by the Federal Reserve Board and becoming subject to the SEC's "penny stock" rules thereby reducing the attractiveness of the Company's stock as an investment vehicle and making it more difficult for the investor to purchase and sell the Company's stock. THE COMPANY HAS LIMITED EXPERIENCE WITH MANUFACTURING OPERATIONS. The Company entered the motorcycle manufacturing business in 1997. Previously, the Company's operations had involved only the operation of retail stores selling new and used motorcycles and motorcycle parts and accessories. Although the Company has acquired considerable manufacturing experience since it entered the 25

26 business in 1997, that experience is more limited than that of other motorcycle manufacturers which have been in operation for a longer period of time. THE COMPANY'S PRODUCTS COULD CONTAIN DEFECTS CREATING PRODUCT RECALLS AND WARRANTY CLAIMS WHICH COULD MATERIALLY ADVERSELY AFFECT THE COMPANY'S FUTURE SALES AND PROFITABILITY. The Company's products could contain unforeseen defects. These defects could give rise to product recalls and warranty claims. A product recall could delay or even halt production until the Company is able to address the reason for any defects. Recalls may also have a materially negative effect on the brand image and public perception of the Company's motorcycles. This could materially adversely affect the Company's future sales. Recalls or other defects would be costly and could require substantial expenditures. Unanticipated defects could also result in litigation against the Company. Given the nature of its products, the Company expects that it will be subject to potential product liability claims that could, in the absence of sufficient insurance coverage, have a material adverse impact on the Company. The Company cannot assure you that it will be able to secure or maintain adequate liability insurance to cover all product liability claims. Any large product liability claim could materially adversely affect the Company's ability to market its motorcycles and could have a material adverse impact on the Company's business, operating results and financial condition. THE COMPANY MAY NOT BE ABLE TO MAINTAIN OR INCREASE ITS CURRENT LEVEL OF SALES IF CHANGES IN POPULAR TRENDS OR ECONOMIC CONDITIONS CAUSE A DECLINE IN MARKET DEMAND FOR HEAVYWEIGHT CRUISER MOTORCYCLES. The base retail price of one of the Company's heavyweight cruiser motorcycles ranges from approximately $20,000 to $25,000. Motorcycles within this price range are luxury goods. Therefore, market demand for heavyweight cruisers such as those manufactured by the Company may be particularly susceptible to changes in popular trends and economic conditions. These economic factors include, among others: - employment levels; - business conditions; - interest rates; - general level of inflation; and - taxation rates. If such changes cause a decline in market demand for heavyweight cruiser motorcycles, the Company may not be able to maintain or increase its current level of sales. THE COMPANY MAY NOT BE ABLE TO MAINTAIN OR INCREASE ITS CURRENT LEVEL OF SALES IF IT DOES NOT CONTINUE TO EXPAND ITS 26

27 DEALER NETWORK. Motorcycles manufactured by the Company are sold through approximately 86 independent Ultra Cycles dealers, of which approximately 55 are currently active as of October 26, 2000. The Company may not be able to maintain or increase its current level of sales if it does not continue to expand its dealer network, and there is no assurance that the Company will be able to do so. THE COMPANY'S COMPETITIVE POSITION WITHIN ITS NICHE OF THE HEAVYWEIGHT CRUISER MOTORCYCLE MARKET COULD SUFFER IF EXISTING COMPETITORS EXPAND OPERATIONS OR OTHER MOTORCYCLE MANUFACTURERS INSTITUTE SIMILAR PRODUCT OFFERINGS. The Company seeks to avoid direct competition with Harley-Davidson, which has the largest share of the heavyweight cruiser motorcycle market, by competing within a specialized niche. The Company's competitive strategy focuses on product performance and style, pricing and service. For example, the Company offers on all models, at no additional charge over base prices, customized features like polished or painted high-performance engines and a four-year, unlimited mileage warranty where the first six months are provided by a factory service warranty and thirty-six months are provided by a third party service contract. These features and benefits all combine to present an image that differentiate the rider from the Harley-Davidson consumer. The Company's main competitors within this niche of the heavyweight cruiser motorcycle market are Titan Motorcycles, Big Dog Motorcycles, Indian and American Iron Horse. In the event that the Company's existing competitors expand their manufacturing operations, or other motorcycle manufacturers institute product offerings on terms similar to those offered by the Company, the Company's competitive position within its niche of the heavyweight cruiser motorcycle market could suffer. THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UNDERLYING OPTIONS AND WARRANTS MAY CAUSE SIGNIFICANT DILUTION OF EXISTING SHAREHOLDERS' INTERESTS. As of December 31, 1999, 1,347,583 warrants and 1,266,387 options were outstanding, 770,527 of the options were fully vested. During the nine months ended September 30, 2000 the Company issued 200,000 warrants, no options were issued and there was no change in the number of options that are fully vested. Under the terms of the agreement governing its $4.5 million term loan from FINOVA Mezzanine Capital, the Company is obligated to issue to FINOVA on each anniversary of the closing date of the term loan, until such loan is paid in full, a warrant to purchase 200,000 additional shares of common stock at an exercise price equal to the greater of (1) $4.00, or (2) 80% of the average closing bid price of the common stock for the 20 days preceding such anniversary date. Since June 1998, the date of the FINOVA loan, the Company became obligated to issue a warrant to purchase 400,000 additional shares of Common Stock pursuant to the foregoing provision. The issuance in June 2000 of 200,000 shares and the issue of 200,000 shares in June 1999 brings the total warrants issued to FINOVA to 857,500 as of September 30, 2000. The issuance of additional shares of common stock upon exercise of the warrants and options 27

28 described in this paragraph could result in significant dilution to existing security holders of the Company. THE POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK MAY ADVERSELY AFFECT RIGHTS OF HOLDERS OF COMMON STOCK AND MAY RENDER MORE DIFFICULT CERTAIN UNSOLICITED TAKEOVER PROPOSALS WHICH WOULD BE IN THE BEST INTEREST OF SHAREHOLDERS. As of the date of this report, the Company has 702,194 shares of preferred stock outstanding. The Articles of Incorporation of the Company permit the Board of Directors to designate the terms of, and issue, up to 9,297,806 additional shares of preferred stock without further shareholder approval. The issuance of additional shares of preferred stock could adversely affect the rights of holders of common stock by, among other things, establishing preferential dividends, liquidation rights and voting power. In addition, the issuance of preferred stock might render more difficult, and therefore discourage, certain unsolicited takeover proposals which would be in the best interest of shareholders, such as a tender offer, proxy contest or removal of incumbent management. THE COMPANY RELIES HEAVILY ON THIRD PARTY PARTS SUPPLIERS AND ANY SIGNIFICANT ADVERSE VARIATION IN QUANTITY, QUALITY OR COST WOULD NEGATIVELY AFFECT OUR OPERATIONS. We operate primarily as an assembler and rely heavily on a number of major component manufacturers to supply us with almost all of our parts. Any significant adverse variation in quantity, quality or cost would adversely affect our volume and cost of production until we could identify alternative sources of supply. OUR FAILURE TO COMPLY WITH VARIOUS REGULATORY APPROVALS AND GOVERNMENTAL REGULATIONS COULD NEGATIVELY IMPACT OUR OPERATIONS. Our motorcycles must comply with certain governmental approvals and certifications regarding noise, emissions and safety characteristics. Our failure to comply with these requirements could prevent us or delay us from selling our products which would have a significant negative impact on our operations. OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY WHICH MAY RESULT IN THE VOLATILITY OF OUR STOCK PRICE. Our quarterly operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control. These factors include: - the amount and timing of orders from dealers; - disruptions in the supply of key components and parts; - seasonal variations in the sale of our products; and - general economic conditions. 28

29 WE ARE SUBJECT TO CONTINGENT LIABILITIES UNDER A DEALER FLOOR PLAN FINANCING PROGRAM WHICH COULD EXPOSE US TO SIGNIFICANT FINANCIAL OBLIGATIONS. Approximately 80% of our dealers receive floor plan financing for our products through several lending institutions. The dealers are the obligors under these floor plan agreements and are responsible for all principal and interest payments. However, we are subject to a standard repurchase agreement which requires us to buy back any of our motorcycles at the wholesale price if the defaults and the motorcycles are repossessed by the lender. While we have only had to repurchase less than approximately $175,000 or ten motorcycles since August of 1997, as of September 30, 2000, total estimated outstanding obligations of all 80 dealers is estimated to range between $4,600,000 and $8,300,000. Our profitability would be significantly negatively impacted if we were forced to repurchase a large number of these motorcycles. Other important risk factors that could cause the Company's actual results to differ materially from those expressed or implied by the Company or on behalf of the Company are discussed elsewhere within this Form 10-QSB and Part I, Item 2 of this report, entitled, "Management's Discussion and Analysis of Financial Condition and Results of Operations". PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In November 2000, the Company became aware of a complaint filed on or about September 7, 2000 in a civil action styled People of the State of California ex rel. State Air Resources Board v. Ultra Acquisition Corporation, Ultra Acquisition Corporation dba Ultra Cycles/Bikers Dream, Bikers Dream of Santa Ana, Bikers Dream of San Diego, Bikers Dream of Sacramento, Herm Rosenman, Hal Collins and Does 1 through 50, inclusive, in the Superior Court of the State of California, County of Orange, Case No. OOCC10745. The compliant alleges violations of California's motor vehicle air pollution control laws committed by defendants in connection with the sale of motorcycles without required certification by the California State Air Resources Board ("ARB"). The action seeks to enjoin any further violations and to recover a penalty. The Company has initiated discussions with the ARB with the intention of obtaining a prompt resolution of this matter on terms which will not materially impair the Company's financial condition. In addition, the Company will tender the defense of this action to all appropriate insurance carriers. The Company does not have sufficient information regarding the claims which are the subject of the complaint to assess the likely outcome of this matter. Accordingly, no assurance can be given as to the ultimate outcome of this matter. ITEM 2. CHANGES IN SECURITIES Not Applicable. 29

30 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed or incorporated by reference as part of this report: <TABLE> <S> <C> 2.1 Agreement and Plan of Reorganization dated August 4, 1994 among HDL Communications (now known as Bikers Dream, Inc.), Biker Dream, Inc. and the stockholders of Bikers Dream, Inc., as amended by agreements dated November 11, 1994, February 3, 1995 and February 20, 1995.(1) 2.2 Asset Purchase Agreement dated January 30, 1997 among the Company, Ultra Acquisition Corporation and Mull Acres Investments, Inc.(2) 2.3 Asset Purchase Agreement dated January 18, 2000 between Bikers Dream, Inc. and V-Twin Holdings, Inc.(3) 3.1 Articles of Incorporation, as amended, of Bikers Dream, Inc. (formerly known as HDL Communications)(1) 3.1.1 Certificate of Amendment of Articles of Incorporation dated June 21, 1996(4) 3.1.2 Certificate of Correction of Certificate of Amendment of Articles of Incorporation dated July 25, 1997(5) 3.1.3 Certificate of Ownership of HDL Communications (now known as Bikers Dream, Inc.)(1) 3.1.4 Certificate of Determination of Series B Convertible Preferred Stock(5) 3.1.5 Certificate of Determination of Series C Convertible Preferred Stock(6) </TABLE> 30

31 <TABLE> <S> <C> 3.1.6 Certificate of Determination of Series D Convertible Preferred Stock(7) 3.2 Bylaws, as amended, of Bikers Dream, Inc. (1) 4.1 Form of Certificate of Common Stock of Bikers Dream, Inc.(8) 4.2 Articles of Incorporation of the Company, as amended (included as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and 3.1.6) 4.3 By-laws, as amended, of the Company (included as Exhibit 3.2). 4.4 Loan Agreement dated June 22, 1998 between FINOVA Mezzanine Capital Inc. (formerly known as Sirrom Capital Corporation d/b/a/ Tandem Capital) and the Company and Ultra Acquisition Corporation as Borrowers(8). 4.5 First Amendment to Loan Agreement and Loan Documents dated as of January 31, 2000 between FINOVA Mezzanine Capital Inc. and the Company and Ultra Motorcycle Company (f/k/a Ultra Acquisition Corporation) as Borrowers(9). 15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding awareness of use of report dated October 19, 2000, except for Note 3 for which the date is November 9, 2000. 27 Financial Data Schedule </TABLE> -------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form SB-2 (Registration No. 33-92294) filed with the Commission on May 31, 1995 and Amendment No. 1 thereto filed with the Commission on October 16, 1995. (2) Previously filed as an exhibit to the Company's Form 8-K dated January 30, 1997 filed with the Commission on February 14, 1997. (3) Previously filed as an exhibit to the Company's Form 8-K dated January 18, 2000 filed with the Commission on January 26, 2000. (4) Previously filed as an exhibit to the Company's Form 10-KSB report for the fiscal year ended December 31, 1996 filed with the Commission on April 15, 1997. 31

32 (5) Previously filed as an exhibit to the Company's Form 10-QSB report for the fiscal quarter ended September 30, 1997 filed with the Commission on November 14, 1997. (6) Previously filed as an exhibit to the Company's Form 10-QSB report for fiscal quarter ended March 31, 1998 filed with the Commission on May 15, 1998. (7) Previously filed as an exhibit to the Company's registration statement on Form S-3 filed with the Commission on February 11, 1999. (8) Previously filed as an exhibit to the Company's Form 10-KSB report for the fiscal year ended December 31, 1998 filed with the Commission on April 15, 1999. (9) Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the period ended December 31, 1999 filed with the Commission on April 14, 2000. (b) Reports on Form 8-K NONE 32

33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 14, 2000 Bikers Dream, Inc. By: /s/ Harold L. Collins ------------------------------ Harold L. Collins, Chief Operating Officer Principal Executive Officer By: /s/ Michael J. Fisher ------------------------------ Michael J. Fisher Chief Financial Officer 33

1 EXHIBIT 15 Bikers Dream, Inc., dba Ultra Motorcycle Company 3810 Wacker Drive Mira Loma, California 91752 We have reviewed, in accordance with standards established by the American Institute of Certified Public Accountants, the unaudited interim financial information of Bikers Dream, Inc., dba Ultra Motorcycle Company and consolidated subsidiaries for the nine-month period ended September 30, 2000, as indicated in our report dated November 11, 2000, except for Note 3 to which the date is November 9, 2000; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-QSB for the quarter ended September 30, 2000, is incorporated by reference in the Registration Statements of Bikers Dream, Inc., dba Ultra Motorcycle Company on Forms S-3/A (#333-90747, dated January 26, 2000), S-3/A (#333-72167, dated August 25, 1999), S-8 (#333-68971, dated December 15, 1998), S-8 (#333-32639, dated August 1, 1997), S-3/A (#333-17829, dated May 23, 1997), and S-8 (#333-26719, dated May 8, 1997). We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California November 13, 2000

<TABLE> <S> <C>

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<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               SEP-30-2000
<CASH>                                         276,459
<SECURITIES>                                   500,000
<RECEIVABLES>                                2,231,634
<ALLOWANCES>                                 (511,305)
<INVENTORY>                                  3,615,547
<CURRENT-ASSETS>                             6,403,053
<PP&E>                                       1,678,796
<DEPRECIATION>                               (813,564)
<TOTAL-ASSETS>                              10,563,948
<CURRENT-LIABILITIES>                        7,397,905
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                    702,194
<COMMON>                                    25,335,964
<OTHER-SE>                                           0
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<SALES>                                     23,252,005
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<CGS>                                       19,137,964
<TOTAL-COSTS>                                3,664,946
<OTHER-EXPENSES>                           (1,162,436)
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<DISCONTINUED>                               (245,158)
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